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Photo = Yonhap news |
[Alpha Biz= Reporter Kim Sangjin] According to the Bank of Korea on December 12, the total foreign debt of domestic companies and financial institutions amounted to $429.86 billion (about 614.7 trillion KRW) at the end of September, a rise of $9.75 billion (about 13.95 trillion KRW) from the end of last year. Foreign debt refers to the foreign currency loans and bonds that companies and financial institutions are obligated to repay.
Amid domestic and international uncertainties, such as the U.S. presidential election, companies and banks have significantly increased their foreign currency borrowings this year. However, the surge in foreign debt, coupled with rising exchange rates, is expected to negatively impact corporate earnings.
The exchange rate for USD/KRW hit 1,402.90 won on December 3, just before the state of emergency in South Korea. It surged further, reaching 1,438.30 won on December 9, marking the highest level since October 24, 2022.
A rising exchange rate increases the burden of repaying foreign debt in terms of the local currency. This leads to reduced net profits for companies. For example, LG Chem, which is highly dependent on raw material imports, is estimated to see a decrease of approximately 5.9 trillion KRW in net profit if the USD/KRW exchange rate rises by 10%. Similarly, Asiana Airlines and SK Innovation would experience net profit losses of 3.65 trillion KRW and 2.82 trillion KRW, respectively, under the same conditions.
Companies like LG Energy Solution, which are expanding overseas production facilities and increasing foreign financing, face growing pressure from high exchange rates, which are more burdensome than beneficial. The impact is expected to be even more severe for small and medium-sized enterprises that rarely hedge their foreign currency risks.
Alphabiz Reporter Kim SangJin(letyou@alphabiz.co.kr)
